Q4FY23 Review: NTPC: Strong operating performance

22 May 2023 , 11:53 AM

NTPC operated its 59GW coal capacity at 80% PLF (8% YoY higher generation), earned 32% YoY higher incentives and had lower fixed costs under-recoveries; subsidiaries/JVs also reported 174% YoY higher profits. Such factors offset the impact of higher tax rate, NIL surcharge (SEBs paying on time), higher provisions, etc. — leading to flat/-6% YoY standalone/consolidated PAT. NTPC expects to add 11.3GW thermal and 16GW RE capacity by FY26 (37% growth); risk of adverse change in regulation is low, which should lead to 8/14% standalone/consolidated PAT growth through FY25. Valuations are inexpensive; retain BUY.

Solid operational performance: 

During Q4FY23, NTPC operated its coal IPPs at 80% PLF vs 76% YoY (generation up 8% YoY), which led to lower fixed costs under-recoveries and higher incentives (up 32% YoY). Subsidiaries/JVs paid 117% YoY higher dividends (PAT up 174% YoY), which offset the impact of lower surcharge income (SEBs paying on time) and YoY lower tax rate; leading to flat earnings. Q4FY23 consolidated PAT was down 6% due to Rs3bn provisions made towards tariff disputes on conservative basis and higher deferred tax. A 49% increase in production from captive mining was the quarter’s highlight. FY23 consolidated OCF/Ebitda conversion was 85%. 

Improved growth visibility: 

During post-earnings call, NTPC stated: 1) Outlook on Power demand is strong; fuel is tied up and should not be a bottleneck. 2) 11.3GW thermal projects should commission in phases over FY24-26 (16% increase in capacity); can extend project pipeline, if need be. 3) Benefit of FGD completion should also accrue from FY24. 4) 16GW RE projects are under various stages of construction and should commission by FY26 (current capacity 3GW). 5) No firm decision yet on monetisation of RE subsidiary. 6) Industry is engaged in policy advocacy regarding new tariff norms applicable from FY25. 7) Payout can increase if growth capex slows down (40% in base case).

Maintain estimates; BUY: 

Analysts of IIFL Capital Services estimate NTPC’s standalone/ consolidated earnings to grow 8%/14% through FY23-25ii, on the back of 6-7GW cap adds p.a., and unchanged regulated RoE. At 8.5x FY24 P/E and 1.1x FY24ii P/B, valuations remain cheap. 

Analysts of IIFL Capital Services maintain BUY. Stock price may remain volatile as discussion/news flow on new tariff norms, kicks in.